Business owners can face massive hurdles their first year in getting the business off the ground. The first year can often make or break the business. There are a number of challenges, including building a successful product or service, marketing the product or service, finding and hiring employees, and paying those employees, suppliers, taxes, and more. In the midst of those struggles, many business owners fail to realize that they may be committing violations of employment law.
One of the first big issues many new businesses face is properly paying and classifying their employees. Some new businesses offer employees stock options in lieu of wages until the business gets off the ground. Although this may sound appealing to both the employer and the employee, it is illegal. Federal minimum wage is $7.25 per hour. California’s minimum wage is $10.50 per hour. In certain areas of California, the minimum wage is more. Employees must be paid the minimum wage, and cannot agree to take less than minimum wage.
In addition, it’s common for the working hours at new companies to be long. If an employee is non-exempt, that employee must be paid time and a half for all hours worked over 40 in a week. In California, if an employee works more than eight hours in a workday, overtime must be paid. If an employee works more than 12 hours in a workday, and works more than eight hours a day more than six days a week, double time must be paid. However, exempt employees do not have to be paid overtime. Exempt employees can be determined by salary or job duties. Non-exempt employees cannot legally agree to waive their non-exempt status.
It’s also common for new businesses to fail to properly classify their workers as independent contractors instead of employees. Employees get a lot more protections by law, and employers have a lot more obligations to them. Independent contractors, on the other hand, normally make more money per hour, but employers do not have to pay them overtime, certain taxes, or provide benefits. The distinction of whether or not a worker is an independent contractor or an employee is not made by the employer or the job title a worker is given. Instead, the important factor is the degree of control that the employer exercises over the employee’s work. There are a number of other factors the IRS and courts use to determine whether a worker is an independent contractor or an employee as well.
One final employment law issue you may want to consider as a new business is protecting your intellectual property. Many new business fail to ask their employees to sign any confidentiality agreements or “non-compete agreements.” If your business has any information that needs to be protected, it’s absolutely essential that employees be required to keep that information private.
If you are a new business and you are concerned about following all state and federal employment laws. It is worth speaking to an employment law attorney about your legal practices in order to ensure you are in compliance with the law. In addition, if you are an employee at a new business and you do not feel like your legal rights are being protected, you may also wish to speak with an attorney. If you are in the Oakland-San Francisco area, call Micha Star Liberty, Oakland employment attorney, at 510-645-1000. Our team can help. We work with clients throughout the Bay area, including San Francisco, Hayward, Tracy, Fairfield, San Jose, Berkeley, and the surrounding areas.